I had the pleasure of meeting the two ladies in the picture, Mary and Didaciene, a few years ago in a Savings Group in Rwanda. When the two women shared about why they were in their group, I wrote down their words as they were translated for me from Kinyarwanda because they seemed like such a perfect example of financial intermediation.
Didaciene saves to save - at this point in her life, she has no desire to borrow, but she is comforted by knowing that she has savings she can call on if she needs.
Mary on the other hand saves to borrow. She has a small business, and needs working capital, so she takes loans from her group.
What could be better? Isn’t this just about a perfect system, where both members find exactly what they need?
Well, apparently not, according to some of the participants in the Post-Project Savings Group class I led with Courtney O’Connell at SMDP in Tanzania. Some of the participants argued that Didaciene wasn’t a good group member, since she wasn’t borrowing. “Mary earns the money for the group,” they argued. “Didaciene is getting a free ride! She doesn’t borrow, and yet she gets to share in the interest.”
We can all understand that argument, but it’s equally true that Mary is getting a break: Didaciene takes the risk of letting someone else borrow her money, and Mary gets to use Didaciene’s savings to earn money in her business. That’s exactly the way financial intermediation is supposed to work.
I asked one of the participants (who thought that Mary was the “better” member) to imagine that he went into his bank to withdraw some money, and the teller greeted him, and said, “We are so happy to have you as a client. Thank you! By the way, we have a new policy that all of our clients have to take loans, so we have prepared a loan agreement for you for five thousand dollars. We’ve locked the doors to the bank so you can’t escape, but as soon as you sign the contract, I’ll unlock them for you and you can go home with your money. Did I mention that our interest rate is 10% a month? Oh - have a nice day.”
He allowed that he wouldn’t like his bank to do that. Didaciene probably wouldn’t like it either, if she were pressured into taking a loan. Fortunately in her group there was little pressure to borrow. But it is a bit shocking that there are practitioners who think that pressuring poor people to borrow is acceptable behavior.
What do you think? Should we all be Mary? Take a moment, show the picture to your colleagues, and ask them what they think. I’d love to hear back from you about that.
This was such a fun topic to talk with our class! I imagine many (dare I say, most?) NGOs are pushing SG members to be Marys when they would be happy to be Didacienes! The messaging coming across about driving up profits/return on savings is pushing the NGO agenda... not listening to the practical needs of the members. I'll fight for the Didancienes of our programs.
Thu, November 21, 2013 | Courtney O'Connell
I totally agree with Courtney - the Marys provide what the Didacienes borrow to trade with and out of which they make money. Besides, let's face it: not all SG members (or even the best of us) are entrepreneurs and SGs provide a place where funds are availed to them to trade with out of which they pay interest. It's only fair that the Marys earn from their savings - they have sacrificed their savings out of which those who borrow make money. I honestly feel making return on savings (ROS) a driving factor is not the best way to go.
Thu, November 21, 2013 | Kuria
I agree with the three of you. The promoters of self-forming ASCAs in Assam go out of their way to help put Marys and Didacienes in the same group to ensure there is enough capital on the one hand and enough users of capital on the other hand. The group fully supports promoter efforts to balance borrowers and savers, in fact pays them to do so. Paul's wonderful graphic brings this all to life.
Fri, November 22, 2013 | Kim Wilson
I've spent lots of time over the last couple of years trying to instill the value of saving to save with practitioners I work with. It has been an uphill battle, but I think I am winning converts. Unfortunately, most SG members seem to stay focused on the fairness of each member contributing to the interest earned by the group. The best argument I've come up with is to talk about the security risk of giving loans to members who are not ready or interested in taking a loan (which is to say these individuals might be at greater risk of defaulting). Anyone else have a persuasive argument?
Tue, November 26, 2013 | Aaron Stroud-Romero
Very interesting Paul. I agree with most of the comments posted following your very interesting article. This is often where, without in-depth analysis, some of us in rushing conclude that this is “elite capture”. NO!. I believe this is where good and knowledgeable facilitators are demanded. Communities, groups or facilitators who normally say every member must borrow need to critically think what happens if Dedaciene is forced to borrow:
Mary does not get the amount (or size) of loan she needs. Her business will not “increase” as she would have desired. Her entrepreneurial success which could be a motivator to Dedaciene is lost. So the entrepreneurial members, like Mary, I have seen and if well informed “celebrate” when they are in groups with those interested in saving only. After all if Mary makes profit from the IGAs she knows too well that the group only needs say an additional 10% (interest) to the principal loan. And the rest of the profit from the business she keeps to herself. In training some do not often talk about the business profit benefit and only focus on the 10%. I often work out these examples with communities. Of course Dedaciene knows she voluntarily made a choice, gets her share of the profit at the end of the cycle and she is happy with that. After all if she was to put that same money at the “other places” she would have never obtained the same returns. And at any point or in the next cycle if she wants to become a Mary she can do so.
Dedaciene takes the loan with no investment opportunity or activity planned. She faces repayment challenges putting not only part of her own savings at risk but those of the other members. Who is at risk to lose? The whole group. Dedaciene may end up dropping out of the group and will be worse off than she would have been if given the option to take breaks during the cycle.
Should then a group leave part of their savings lying idle because Dedaciene does not want to take loans? What is the risk to the idle funds (think inflation, lost income, theft…)? If all members properly selected and trust each other why not allow such diversity.
I have been to training where the facts of the benefits and risks are not discussed. At best what we can do is to give such facts during training and leave the group to decide. We can only encourage and motivate members to borrow but not force it!
Thu, December 12, 2013 | Alfred Hamadziripi
Alfred says 'We can only encourage and motivate members to borrow but not force it! ' Why would we encourage people to borrow at all? People borrow either because they are in distress or because they can invest in something that will make a profit, improve their quality of life or tide them over a cash-flow shortfall. I am certain that they are pretty much aware of what's on offer, draw their own conclusions and are acutely aware of the possible downside. They don't and shouldn't need encouragement to borrow. Are we going to take responsibility when our 'encouragement' mutates into coercion and when the results turn sour? As Paul very wisely said a long time ago, 'no-one ever complained about having too much savings' but.......!
Fri, December 27, 2013 | HUgh Allen
Hugh. I believe the reasons you give for borrowing though valid need to be put into the context of a group model, related dynamics and peer pressure often exerted on non-borrowers. This is intertwined with the level of knowledge of what benefits and risks are there between borrowers and non-borrowers. The knowledge is often deficient not just for communities but the trainers. I believe in the context of savings groups we should not over simplify that the knowledge on the downside of borrowing without a purpose exists. The reality of groups that force members to borrow speaks.
It is a fact that promotion of SGs is founded on encouragement and motivation. Otherwise there would be no uptake. We should not encourage all or any member to borrow but the practice of taking loans. Who gets to borrow depends on each situation. Will the VSLA methodology be realised without the lending part? (whether by some and not all members borrowing)
My point is from a facilitation point when promoting SGs and/or training communities. It is quite common to encounter community members (and trainers) who ask or state that:
• Can every member in our group borrow?
• What do we do if one of our members does not borrow?
• What happens when only one member borrows?
• In our group everyone must be a borrower
• If a member does not take a loan we will drop them
For each there can be practices we can only encourage but not impose particular positions. In several meetings facilitators (and the communities) tend to be blunt that one cannot be a member unless they borrow and often giving un-informed justifications. Which is not true and this discourages non-borrowers from forming or joining groups or forcing them to take loans. Encouragement with rationale for groups to consider options is not the same as deciding on behalf of a group. When options are given with the group being empowered to decide I do not see how the responsibility question comes into the picture.
Fri, January 3, 2014 | Alfred Hamadziripi